Financing 101: Increases to Conforming Loan Limits

Good news this week that the loan limits for a conforming loan is increasing for 2019. It’s worth understanding what conforming loans are, what the changes are and how it may impact buyers in our real estate market.

What’s A Conforming Loan?

A conforming loan is a mortgage that is equal to or less than the dollar amount established by the conforming loan limit set by The Federal Housing Finance Agency (FHFA) and meets the funding criteria of Freddie Mac and Fannie Mae. (source: Investopedia.com)

Conforming loans, which are smaller than jumbo loans, have the benefit of allowing for smaller down payments (minimum 5% in high-cost markets,) and are less restrictive on credit scores and credit history requirements. There are no reserve requirements and loans can generally be closed faster. Gift funds may be used for down payments and there is no minimum borrower contribution. Often times, conforming loan interest rates are lower than jumbo loan rates as well.

What Are The Conforming Loan Changes?

The federal agencies have two limit levels for conforming loans, depending on the type of market you are in. Here in our “high-cost” market, the limit is higher (obviously,) than in standard markets. Here’s what the limits look like for 2018 and 2019 for the Bay Area:

$679,650 in 2018

$726,525 in 2019

So why are these changes taking place? Quite simply, the value of homes nationwide has gone up 6.9% so the conforming loan limits have been increased by the same amount.

Impact of Conforming Loan Changes

Based on the limits for 2019, putting 20% down would allow for conforming financing up to a $908,000 purchase price. But let’s be honest, you’d be hard pressed to find a property to purchase on the Peninsula for $908,000. But don’t despair…

Even though one of the benefits of the conforming loan is to be able to have a lower down payment, the buyer who can put down a higher down payment to keep their loan amount within the $726,525 range, can reap the benefits of conforming loans. While this may seem insurmountable, keep in mind that gift funds can be used with a conforming loan so it may be more achievable than you first think.

If you’re thinking of buying in 2019, be sure to talk with your lender (or a couple of lenders,) to understand the impact of these changes on you and how you might be able to benefit from them.